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Arab Intermediaries

Arab intermediaries

Cooperation treaties signed between Arab stock exchanges
The trilateral cooperation treaty was signed between ( Egypt, Kuwait, and Lebanon) on the 24th of October 1996, under the umbrella of the Stock Exchanges Federation and the IOSCO with the aim of establishing a unified Arab Capital Market to control the Arab capital and remove barriers between the Arab Capital Markets at the international and regional level. This treaty was the start and was followed by other treaties signed between different Arab markets. The main objectives of the treaties are:
•   Dealing with the different economic coalitions.
•   Creating a mechanism for trading securities in the Arab capital markets in order to enable the Arab investor to trade securities in the Arab Stock Exchanges as well as the local ones.
•   Developing and updating the system applied in the Arab Stock Exchanges to be in line with the international markets.
•   Facilitating the conditions and procedures of public offering in the participant countries.
•   Establishing a database for the securities traded in the participant countries.

Role of the clearing companies in member countries:
•   Every clearing company in the participant countries shall open an account with the other countries’ clearing banks.
•   Upon executing selling or buying transactions, crediting or debiting shall be done on the account of   the clearing bank of the country where the transactions are executed.
•   The clearing company of the country where the transactions are executed holds custody of the material securities bought for the benefit of the other participants in the tripartite agreement and will also manage their accounts.

Objectives of the participant clearing companies:
•   Regular Settlement of the selling and buying transactions executed between member countries.
•   Increase the volume of trading in proportion with the size of the participant markets.
•   Direct all the dealings related to foreign investors through this treaty.

Responsibilities and tasks of the participant clearing companies
•   Follow up the buy order till settlement and issue of relevant statement of accounts.
•   Follow up the sale order till settlement.
•   Follow up the bank accounts movement.
•   Issue periodical reports on trading volume.
•   Solve the problems that delay settlement of buying or selling transactions.

Principles of dealing through the treaty between the Arab markets
•   The foreign clearing companies opens two settlement accounts with a bank or the domestic clearing banks in the executing country.
•   The domestic clearing company is responsible for managing the foreign clients’ records or managing the current accounts for the securities.
•   Dealing with the foreign clients through the intermediaries who are member of in the stock exchanges federations and Arab Capital Market Authorities.
•   The selling and buying transactions will be settled according to the approved timeframes for securities and financial settlements in the domestic market.
•   The domestic clearing company will be responsible for issuing statements of accounts concerning the foreign clients.

There are two types of forms for executing the selling and buying transactions:
1.   First form: the order form which should be filled by the country issuing order through an intermediary accredited by the treaty.
2.   Second form: the execution form issued by the execution country through an intermediary accredited by the treaty.
Note: these forms (orders- buying and selling trades execution) are prepared by the stock exchanges federation and the international capital market organizations.

The procedures of executing trading transactions on the securities registered at the central depository system within the tripartite cooperation treaty.

In case of buying securities
1.   Before executing the buying order.
•   The client in the buying order country issues buy order to the brokerage firm he deals with indicating the quantity and the price and the order validity.

During the execution
•   The brokerage firm sends the order form to the other brokerage firm in the executing country after receiving the buying order from the client.
•   The brokerage firm executes the buy order in the stock exchange on the trading day (T).
•   After executing the buy order, the executing broker sends a copy of the execution form and a copy of the execution document to the brokerage firm issuing the buy order and to the clearing company in the executing country.
•   The clearing company in the executing country sends the form confirming the transactions in the command country the following day of execution (T +1).
•   The brokerage firm in the executing country sends a copy of the execution documents to the clearing company in the command country following the day of execution(T + 1)

Post execution phase.
•   The clearing company in the command country shall transfer the buying value to its account with the clearing bank the following day of execution till (T + 2).
•   The clearing company in the execution country executes the financial settlement of the buying transaction on (T + 3) and deducts the transaction value from the clearing company’s account at the command country at the clearing bank in the executing country.
Note:
The Overseas Transactions Department will be responsible for managing the clients’ accounts under the tripartite cooperation treaties.

In case of sale
1- Before executing of the sale order.
The client submits a sale order to the brokerage firm he deals with indicating the quantity and the price and the order duration.
•   The brokerage firm issuing the order should send the sale form to the executing brokerage firm which in turn notifies the clearing company to be able to check the client’s balance and execute the sale order. The clearing company in the executing country is responsible for bookkeeping activities of the client’s securities.

2- Execution phase.
•   The domestic brokerage firm sends the order form to the brokerage firm in the executing country.
•   The brokerage firm in the executing country checks the balance with the clearing company managing the client’s records.
•   The brokerage firm executes the sale order in the stock exchange in the trading day (T).
•   After the execution of the sale order, the executing broker sends a copy of the execution form and a copy of the execution documents to the brokerage firm in the command country and to the clearing company in the executing country. The latter will send the executing transaction executing from to the clearing company in the command country in T+1 indicating the confirmation of the sale transaction
•   The brokerage firm will send a copy of the executing documents to the clearing company in the command country in (T+1).

3- Post execution phase
•   The clearing company executes the financial settlements on (T+3) and credits the transaction value to the clearing company’s account in the command country with the clearing bank in the executing country.
•   The clearing company notifies the clearing company in the command country of the settlement of selling transaction and credit the value to the clearing bank in the execution country.

The procedures of executing of trading transactions on material securities through the tripartite cooperation treaty

First: In case of the buying securities.
1-   Before executing the buy order.
The client in the command country submits a buy order to the brokerage firm he deals with   indicating the quantity, the price and the order validity.
2- During the execution
The brokerage firm sends the order form to the brokerage company in the executing country.
•   The brokerage firm executes the buy order in the stock exchange on the trading day (T).
•   After the execution of the buy order, the executing broker sends a copy of the execution form and a copy of the execution document to the brokerage firm issuing the buy order and to the clearing company in the executing country.
•   The clearing company in the execution country sends the form confirming the transactions in the command country the following day of execution (T +1) confirming the executing of the purchase transaction.
•   The brokerage firm in the executing country sends a copy of the execution documents to the clearing company in the command country the day of execution(T + 1)

3- Post execution phase.
•   The clearing company in the command country transfers the buying value to its account with the clearing bank the following day of execution till (T + 2).
•   The clearing company in the execution country executes the financial settlement of the buying transaction on (T + 4) and deducts the transaction value from the clearing company’s account at the command country at the clearing bank in the executing country.
Note:
The Overseas Transactions Department will be responsible for depositing and registering material securities traded under the tripartite cooperation treaties.

Second: Sale
In case of sale
1- Before the execution of the sale order.
•   The client submits a sale order to the brokerage firms he deals with indicating the quantity, the price and the order validity.
•   The brokerage firm issuing the order sends the sale form to the executing brokerage firm which in turn notifies the clearing company to be able to check the client’s balance and execute the sale order. The clearing company in the executing country is responsible for bookkeeping activities of the client’s securities.

2- Execution phase.
•   The domestic brokerage firm sends the order form to the brokerage firm in the executing country.
•   The brokerage firm in the executing country checks the balance with the clearing company managing the client’s records.
•   The brokerage firm executes the sale order in the stock exchange on the trading day (T).
•   After the execution of the sale order, the executing broker sends a copy of the execution form and a copy of the execution documents to the brokerage firm in the command country and to the clearing company in the executing country.
•   The clearing company sends the executing transaction confirmation from to the clearing company in the command country on T+1 indicating the confirmation of the sale transaction.
•   The brokerage firm sends a copy of the executing documents to the clearing company in the command country in (T+1).

3- Post execution phase
•   The clearing company executes the financial settlements on (T+4) and credits the transaction value to the clearing company’s account in the command country with the clearing bank in the executing country.
•   The clearing company notifies the clearing company in the command country of the settlement of selling transaction in the trading day (T) and credits the value to the clearing bank in the execution country.